Hours of fun ahead as Lloyds the joker plays the Scottish card

City Editor's comment

12:00AM GMT 01 Feb 2001

CONVENTION dictates that English clearing banks are not allowed to take each other over, but, if the bidder is Scottish, that's just fine. So Lloyds TSB should sail through the Office of Fair Trading examination - in case you haven't noticed, Lloyds is a Scottish bank these days, at least measured by country of incorporation.

In practice, the OFT is unlikely to be impressed, even if chief executive Peter Ellwood tries to play the Scottish card. Allowing Lloyds to take over Abbey National would concentrate market share of current accounts in the hands of the new megalith - 27pc on Lloyds' estimate, or 30pc according to Abbey. You can already see how they are shaping up for a fight.

For good measure, Abbey points out that Lloyds Abbey would be the biggest in mortgages, savings and bancassurance too, implying that the deal will have to go to the Competition Commission. On the face of it, the logic looks impeccable. The rule of thumb for an investigation is a market share of over 25pc, and, even on Lloyds' own figures, that ceiling is breached. Yet anybody who thinks there is insufficient competition for current accounts has not been paying attention.

There are dozens, and the banks have pledged to take the pain out of the process of switching. So competitive is this market that some banks offer completely unrelated accounts - Abbey itself has recruited Alan Davies (aka Jonathan Creek) to push its version, while an internet offering called Cahoot (prop. Abbey National) is also spending hard. The disappearance of one competitor will make no practical difference; it might even encourage Lloyds to make its accounts rather better value than they are at present.

The better question is whether this bid is a good idea for Lloyds in the first place. Mr Ellwood needs a big deal to cement his position as rightful successor to Sir Brian Pitman, but this may not be it, or not at this price. He is proposing to pay nearly as much as Royal Bank paid for NatWest, a much bigger (and worse run) business.

Related Articles

The cost savings depend heavily on branch closures, and the statistic that 600 of Abbey's are within a quarter of a mile of a Lloyds. Yet Royal Bank has scrapped its branch closure programme, preferring to grow the top line instead. Its shares have danced away since its bid, while Lloyds' languish far below their 1998 peak. Few believe its last big deal, the purchase of Scottish Widows, has been the success that Lloyds claims. Still, it's early days. We have not even reached Day Zero yet, for the publication of the offer document, and, with the OFT not likely to rule before its February 23 deadline, the bid will run to April even if it is cleared. Convention also dictates that perceptions during takeover bids can change, and even reverse. There's hours of fun ahead.